<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
Commission File Number: 0-18108
------------------------
FINET HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of
incorporation or organization)
235 MONTGOMERY STREET, SUITE 750
SAN FRANCISCO, CA 94104
(Address of principal executive office)
94-3115180
(IRS Employer Identification Number)
(415) 658-4150
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements within the past 90 days.
Yes 'X' No___
The number of shares outstanding of each of the issuer's classes of common
stock was 17,593,152 shares of common stock, par value $.01, as of
September 30, 1996.
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<PAGE> 2
FINANCIAL STATEMENTS
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1996 1995
(UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 4,000 $ -
Accounts receivable......................... 40,700 89,100
Prepaid expenses and deposits............... 25,000 33,700
Notes receivable............................ 72,000 72,000
Other receivables........................... 62,000 -
------------- ------------
Total current assets...................... 203,700 194,800
Furniture, fixtures and equipment,
net of accumulated depreciation
of $452,800 and $445,400.................. 44,300 51,700
Intangible assets, net of accumulated
amortization of $1,015,800 and $856,500..... 36,100 195,400
------------- ------------
Total assets.............................. $ 284,100 $ 441,900
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable................................ $ 150,000 $ 25,000
Accounts payable............................ 929,300 996,600
Accrued liabilities......................... 287,100 175,200
Convertible debenture....................... 800,000 800,000
Liabilities of discontinued operations...... 2,500 2,500
------------- ------------
Total current liabilities................. 2,168,900 1,999,300
------------- ------------
Total liabilities......................... 2,168,900 1,999,300
------------- ------------
Stockholders' equity (deficit)
Common stock, par value $.01 issued
17,593,152 shares in 1996 and 12,930,479
shares in 1995............................ 175,900 129,300
Additional paid-in capital.................. 19,848,200 19,759,600
Accumulated deficit......................... (21,908,900) (21,446,300)
------------- ------------
Total stockholders' equity(deficit)....... (1,884,800) (1,557,400)
------------- ------------
Totals.................................... $ 284,100 $ 441,900
============= ============
</TABLE>
<PAGE> 3
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues........................................ $ 900 $ 101,900
Operating expenses:
Compensation and benefits..................... 75,750 103,800
Occupancy and equipment....................... 1,500 6,600
Communications................................ ,400 8,200
Loan related fees and costs................... - 4,000
Amortization & Depreciation................... 55,600 103,000
General & administrative...................... ,500 102,800
------------ -----------
133,800 328,400
------------ -----------
(Loss) from operations.......................... (132,900) (226,500)
------------ -----------
Interest........................................ 20,100 20,000
------------ -----------
(Loss) from continuing operations............... (153,000) (246,500)
------------ -----------
Other expense................................... - 1,800
------------ -----------
Net income/(loss)............................... $( 153,000) $ (244,700)
============ ===========
Net income/(loss) per share..................... $(.01) $(.03)
============ ===========
</TABLE>
<PAGE> 4
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues........................................ $ 32,700 $ 499,300
Operating expenses:
Compensation and benefits..................... 246,200 623,800
Occupancy and equipment....................... 9,300 102,600
Communications................................ 25,600 72,700
Loan related fees and costs................... 5,500 296,700
Amortization & Depreciation................... 166,700 445,500
General & administrative...................... 19,900 401,600
------------ -----------
473,200 1,942,900
------------ -----------
(Loss) from operations.......................... (440,500) (1,443,600)
------------ -----------
Interest........................................ 62,100 44,700
------------ -----------
(Loss) from continuing operations............... (502,600) (1,488,300)
------------ -----------
Other income/(expense).......................... 40,000 906,400
------------ -----------
Net income/(loss)............................... $ (462,600) $(1,692,900)
============ ===========
Net income/(loss) per share..................... $(.03) $(.24)
============ ===========
</TABLE>
<PAGE> 4
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
(UNAUDITED)
------------------
<S> <C>
Accumulated deficit at beginning of period...... $(21,446,300)
Net loss........................................ ( 462,600)
-------------
Accumulated deficit at end of period............ $(21,908,900)
=============
</TABLE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)................................... $ (153,100) $(1,488,300)
Adjustments to reconcile loss to
cash used in operating activities............ 122,900 302,100
------------ ------------
Net cash used by operating activities........ (30,200) (1,186,200)
------------ ------------
Cash flows from financing activities:
Offering expenses............................ (31,000) -
Proceeds from sale of common stock........... - 75,000
Proceeds from sale of convertible debenture.. - 800,000
------------ ------------
Net cash provided by financing activities.... (31,000) 875,000
------------ ------------
Cash flows from investing activities:
Organization expense......................... - -
Acquisition of equipment..................... ( - (19,700)
------------ ------------
Net cash used by investing activities........ ( - ) (19,700)
------------ ------------
Increase/(decrease)in cash and equivalents..... (800) (330,900)
============ ============
</TABLE>
<PAGE> 5
FINET HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Due to the Company's inability to complete an audit of its
operations for the fiscal year ended December 31, 1995 until December,
1996, it was unable to file its Form 10-K Annual Report for that period and
the subsequent Form 10-Q Quarterly Reports until the actual signature dates
thereon. During the third quarter of 1996, the Company was in a period of
near operational dormancy while executing a voluntary recapitalization
plan. To the best of the Company's ability, the information in this report
has been prepared and expressed as it would have been if prepared and
submitted on time.
NOTE 2. The financial information included herein as of September 30, 1996
and for the nine months ended September 30, 1996 is unaudited and, in the
opinion of the Company, reflects all adjustments necessary for a fair
presentation of the financial position as of those dates and the results of
operations for that period. The information in the Condensed Consolidated
Balance Sheet as of December 31, 1995 was derived from the Company's Form
10-K Annual Report for 1995.
NOTE 3. The accompanying condensed consolidated financial statements have
been prepared on the basis that the Company will complete its
reorganization plan successfully and continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying condensed
consolidated financial statements, the Company has incurred losses and
negative cash flow from continuing operations, as of September 30, 1996.
Such conditions raise substantial doubt about the Company's ability to
continue as a going concern. The condensed consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 4. Net loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding during the period.
The weighted average number of shares was 16,942,142 shares (nine months)
in 1996 and 6,427,659 shares (nine months) in 1995. Common stock
equivalents are not included because their effect would have been non-
dilutive in all periods.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company is in a weak financial position with little liquidity. During
1996 to date, the Company's operations have been sustained primarily by
bridge loans provided by individual shareholders in anticipation of
completing the Company's previously reported voluntary recapitalization
plan (the "Plan").
The Plan called for negotiated settlements with unsecured creditors, a
private placement to raise additional equity capital, material concessions
from the Company's majority shareholder and secured creditor, licensing of
Finet Corporation's mortgage operations to an affiliate office and a
revised business plan.
The Company has continued to incur losses and negative cash flow through
September 30, 1995. Absent successful completion of the Plan, the ability
of the Company continue operations appears doubtful. Upon successful
completion of the Plan, the Company will have materially reduced its
liabilities and believes it will have adequate liquidity and working
capital.
INFLATION
Inflation has not had any material impact on the Company's operations.
RESULTS OF OPERATIONS
The Company's activities during the quarter were focused primarily on
completing the Plan. Initially, the Company anticipated completing its $2
million equity offering by May 15, 1996 and receiving approximately
$200,000 of bridge loans to sustain its operations until then. Of $150,000
in bridge loans arranged by the placement agent to date, after its expenses
the Company received a net total of approximately $103,000. Accordingly,
the Company's staff has been reduced to two executive officers. After April
30, 1996, due to the lack of cash, all executive compensation has been
deferred and accounts payable have increased.
The mortgage brokerage activities of Finet Corporation, a wholly owned
subsidiary resumed on May 15, 1996 when a temporary management license to
an affiliate office expired. These activities consist primarily of
collecting monthly affiliation fees from remaining affiliate offices and
providing various marketing and lender support services to remaining
affiliates. During the quarter, one additional affiliate office was
terminated for non payment of affiliate fees.
Settlements have been reached with over 50% of unsecured creditor claims.
The Company expects to meet the requirement to settle 80% or more of these
claims under the terms of the Plan.
As a result of the previously reported agreement to acquire Monument
Mortgage, Inc., a mortgage banking firm, and Preference America Mortgage
Network, a mortgage broker, and the resultant improvement in the Company's
revised business development plans, expressions of interest obtained by the
placement agent have significantly increased.
<PAGE> 7
MATERIAL SUBSEQUENT EVENTS
As previously reported on Form 8-K, on October 21, 1996, the Company
effected an increase in the number of its authorized common shares from 20
million shares to 30 million shares and a 1-for-2 reverse split of all
issued and outstanding shares. As a requirement of this latter action, the
Company's trading symbol was changed from FTHC to FNHC. While all current
share certificates remain valid, all shareholders have been requested to
exchange their share certificates for a new certificate reflecting their
post-reverse split holdings.
On October 10, 1996, the Company regained good standing in the State of
Delaware by bringing its tax filings current and filing a Certificate of
Renewal with its Secretary of State.
On October 16, 1996, the Company entered into an agreement on behalf of a
group of non-US investors to acquire 6 million shares of the Company's post-
reverse split common stock for $3 million. Additionally, five year warrants
to purchase 2.5 million common shares at an average price of $1.65 per
share were granted. The agreement is contingent upon completing certain
elements of its recapitalization plan.
On December 13, 1996, the Company reached agreement with the group of non US
investors to acquire an additional 1 million shares at $.50 per share and to
grant an additional 1 million warrants at $1.00 per share.
On December 20, 1995, the Company had reached planned settlements with
unsecured creditors representing 79% of the total amounts owed, with
additional settlements expected from the results of ongoing negotiations.
As a result of the foregoing events, at the request of its placement agent,
the Company plans to complete an additional private placement, primarily
for US investors, in early 1997.
<PAGE> 8
COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 1995 AND 1996
The Company incurred a net loss in the third quarter of 1996 of $153,000.
$132,900 of the loss was from continuing operations as compared with
$246,500 for the third quarter of 1995. There is little basis for
comparison of these two periods. The Company's operations in the third
quarter of 1995 were comprised primarily of the mortgage brokerage
activities of Finet Corporation supporting 9 affiliate offices, whereas in
the third quarter of 1996 through May 15, 1996 all mortgage brokerage
activity was licensed to another entity, and thereafter the number of
affiliates was reduced to 4.
ACCORDINGLY, IN MANAGEMENT'S OPINION, BECAUSE OF CHANGES IN THE COMPANY'S
STRUCTURE AND OPERATIONS, COMPARISON OF VARIOUS REVENUE AND OPERATING
EXPENSE CATEGORIES DURING PRIOR PERIODS AS DISCUSSED HEREIN IS IRRELEVANT
AND POTENTIALLY MISLEADING. READERS ARE THEREFORE CAUTIONED IN INTERPRETING
ANY PERIOD TO PERIOD COMPARISONS.
The primary operating expense is compensation and benefits, consisting of
payments to service providers and compensation of management personnel.
Such expenses were $75,750 the third quarter of 1996 and $103,800 in the
third quarter of 1995.
Occupancy and equipment expenses were $1,500 in the third quarter of 1996
and $6,600 in the third quarter of 1995. The reductions were due primarily
to significantly reduced corporate office rental expense.
Communications expense was $400 in the third quarter of 1996 and $8,200 in
the in the third quarter of 1995. The decrease was related primarily to
office consolidations and staff reductions.
Loan related fees and costs were $0 in the third quarter of 1996 and $4,000
in the third quarter of 1995. The decrease was due primarily to the change
in operating structure.
Amortization and depreciation expenses were $55,600 in the third quarter of
1996 and $103,000 in the third quarter of 1995. The decrease was related
primarily to 1995 write-off of intangible assets.
Other expenses include office expenses and other miscellaneous expenses
incurred in connection with the development and management of the business,
including travel, legal, entertainment and corporate printing. Such
expenses were $500 in the third quarter of 1996 and $46,100 in the third
quarter of 1995. The decrease is primarily due to cost control measures.
Interest expense increased from $20,000 in the third quarter of 1995 to
$20,100 in the third quarter of 1996, related the convertible debenture.
The effective overall tax rate remained at 0%.
As a result of the foregoing, net income was $(153,000), a decrease of 38%.
<PAGE> 9
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
The Company incurred a net loss in the first nine months of 1996 of
$462,600. $440,500 of the loss was from continuing operations as compared
with $1,488,300 for the first nine months of 1995. As previously discussed
herein, there is little basis for comparison of these two periods.
The primary operating expense is compensation and benefits consisting, in
1995, of commissions to brokerage agents, payments to service providers and
compensation of processing and management personnel and, in 1996, of
payments to service providers and compensation management personnel. Such
expenses were $246,200 the first nine months of 1996 and $623,800 in the
first nine months of 1995.
Occupancy and equipment expenses were $9,300 in the first nine months of
1996 and $102,600 in the first nine months of 1995. The reductions were due
primarily to significantly reduced corporate office rental expense.
Communications expense was $25,600 in the first nine months of 1996 and
$72,700 in the in the first nine months of 1995. The decrease was related
primarily to office consolidations and staff reductions.
Loan related fees and costs were $5,500 in the first nine months of 1996
and $296,700 in the first nine months of 1995. The decrease was due
primarily to the change in operating structure.
Amortization and depreciation expenses were $166,700 in the first nine
months of 1996 and $445,400 first nine months of 1995. The decrease was
related primarily to the 1995 write-off of intangible assets.
Other expenses include office expenses and other miscellaneous expenses
incurred in connection with the development and management of the business,
including travel, legal, entertainment and corporate printing. Such
expenses were $19,900 in the first nine months of 1996 and $309,400 in the
first nine months of 1995. The decrease is primarily due to cost control
measures.
Interest expense increased from $24,700 in the first nine months of 1995 to
$62,100 in the first nine months of 1996, primarily due to interest on the
convertible debenture.
The effective overall tax rate remained at 0%.
As a result of the foregoing, net income was $(462,600), a decrease of 73%.
<PAGE> 10
PART II
ITEM 1. LEGAL PROCEEDINGS
As a result of the Company's financial position, the Company has
substantial past due accounts payable and is a defendant in several legal
actions brought by unsecured trade creditors for claims totaling $500,000.
As part of its recapitalization plan, the Company expects to reach
settlements with these creditors for approximately 40% of this amount, with
the consideration in the form of shares of the Company's common stock
valued at the private placement offering price per share.
The Company is a defendant in three legal actions brought by individuals
who were formerly employees or independent contractors of one of the
Company's subsidiaries. The total of these claims is not material and the
Company expects either to prevail or to settle these actions as part of its
recapitalization plan.
<PAGE> 11
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FINET HOLDINGS CORPORATION
Date: December 23, 1996 L. DANIEL RAWITCH
-------------------------------------
L. DANIEL RAWITCH
(CEO AND PRINCIPAL EXECUTIVE OFFICER)
Date: December 23, 1996 JAN C. HOEFFEL
-------------------------------------
JAN C. HOEFFEL
(PRESIDENT AND
PRINCIPAL FINANCIAL OFFICER)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 4,000
<SECURITIES> 0
<RECEIVABLES> 174,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 203,700
<PP&E> 497,100
<DEPRECIATION> 452,800
<TOTAL-ASSETS> 284,100
<CURRENT-LIABILITIES> 2,168,900
<BONDS> 0
0
0
<COMMON> 175,900
<OTHER-SE> (1,884,800)
<TOTAL-LIABILITY-AND-EQUITY> 284,100
<SALES> 0
<TOTAL-REVENUES> 32,700
<CGS> 0
<TOTAL-COSTS> 473,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,100
<INCOME-PRETAX> (462,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (502,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 40,000
<CHANGES> 0
<NET-INCOME> (462,600)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
